Optima Automobile Group Holdings Limited (HKG:8418) Stock Rockets 44% But Many Are Still Ignoring The Company

Optima Automobile Group Holdings Limited (HKG:8418) shareholders are no doubt pleased to see that the share price has bounced 44% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 38% over that time.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Optima Automobile Group Holdings' P/S ratio of 0.9x, since the median price-to-sales (or "P/S") ratio for the Specialty Retail industry in Hong Kong is also close to 0.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Optima Automobile Group Holdings

How Optima Automobile Group Holdings Has Been Performing

The revenue growth achieved at Optima Automobile Group Holdings over the last year would be more than acceptable for most companies. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Optima Automobile Group Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Optima Automobile Group Holdings' earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Optima Automobile Group Holdings would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 24% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

When compared to the industry's one-year growth forecast of 16%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's curious that Optima Automobile Group Holdings' P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

Optima Automobile Group Holdings' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We didn't quite envision Optima Automobile Group Holdings' P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

You need to take note of risks, for example - Optima Automobile Group Holdings has 4 warning signs (and 1 which is concerning) we think you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.